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Lanabake

The humble light bulb is so ubiquitous that we seldom give it a second thought, except when one burns out while you’re half way through an evening bath – then it’s a hurried trip down to the convenience store to buy a new one. The average incandescent lamp lasts about 1 year and costs just JPY200 to buy in Tokyo. Unfortunately, while cheap to buy, they are highly inefficient and only about 5% of the electricity flowing in is used to create visible light, while the other 95% gets wasted as heat and infrared light. Thus, to illuminate an average sized living room every night from 6:00pm to midnight with 2 x 60watt bulbs you can expect to pay about JPY6,500 (US$55) in annual electricity bills.

Takeshi Nagahama, President of Lanabake

While the Japanese government hasn’t nailed the incandescent lamp as an energy waster, although perhaps it should, overseas governments are indeed moving to ban incandescent lamps. Australia plans to ban the bulb by 2010, while Canada is planning to ban their sale by 2012. The rationale of these governments is that energy conservation is a priority and since about 20% of global electricity consumption comes from the use of lighting, switching to more efficient technologies is a simple way to reduce national fuel bills.

One such efficient technology is that of fluorescent lamps, or more specifically in the home, Compact Fluorescent Lamps (CFLs). These devices come in the same package as the incandescent lamp, but produce about 5 times more luminosity for a given wattage, and thus are far more power efficient. They also last 6-8 times longer than their incandescent cousins – thus offsetting the 3-4 times higher initial purchase price. CFLs were invented as a commercially viable product back in the 1980s by Philips, and today they are starting to gain market share globally – including Japan, where they are made by Matsushita and others.

While the average Japanese consumer is not bothered by the costs of incandescent lamps, commercial operators running thousands of the things most definitely are. Here, both cost of installing then later replacing the lamps as well as the cost of power, means that companies are open to the idea of newer, more expensive devices if it means increasing the bottom line. For this reason, most commercial premises have been using more efficient fluorescent tubes for some years.

White LEDS get brighter

But there is another technology which has at least double the efficiency of CFLs and that is white LED lighting. LEDs have been around a while, but it has been only recently that commercialgrade products have started becoming available. Earlier this year, Toshiba announced that it will soon sell a lowcost, high-efficiency LED product that will make replacing incandescent lamps more compelling. The company says that although the new LED lights will cost 3 times that of a regular incandescent lamp, they consume only 14% of the power. In Tokyo this would mean savings of JPY20,000 to JPY30,000 for the average household – enough to get consumers to start making the change.

The future promises even better returns. Just this April, Nichia Corporation, the holder of the blue LED patent, announced that they have made a breakthrough in white LED brightness and can now produce devices with a luminous efficiency rating of 150 lumens per watt. This compares to around 12.6 lumens per watt for incandescents and 60 for CFLs. If Nichia are able to bring these devices to market at a cost-effective price, they will have a significant effect on world energy demands.

Other innovations include focus on the cost of replacement. Fujitsu earlier this year announced a lamp that includes an RFID device to tell the owner that it has burned out. While it may seem obvious that you can’t see if there is no light source, the idea is that in areas which are often unattended – warehouses, street corners, and so on. – that a network operating center (NOC) administrator would be alerted of a failure, and be able to schedule a replacement with a regular maintenance sweep, rather than sending people out for each and every burned out lamp – an expensive proposition.

Lanabake fills a niche

But, even with all the research and new products, the fact remains that incandescent and fluorescent lamps, and their ballast transformers and periphery circuits, still need replacing. Typically this maintenance work has gone – through habit and word-work association – to electricity companies and their maintenance subsidiaries. Operators of commercial premises are often unaware that private vendors are now competing for this business, providing both significantly lower prices and better 24/7 service. Furthermore, if you don’t like their bills – the independents can’t cut off your power later!

Nagano-based Lanabake is just such a specialist services company. Established in 1999, by 41-year old Takeshi Nagahama, the firm is rapidly becoming one of the nation’s leading independent servicers of lighting and general office and retail electrical systems. The company reported FY2005 revenues of JPY630million and will see this number soar to JPY1.4billion in FY2006.

Now the old joke about how many lawyers (OK, you can insert “store clerks” here) does it take to replace a light bulb has a simple answer, just one – the person who places a phone call to Lanabake’s 24/7 call center, requesting a service person to come out and get the job done.

You might think that changing a lamp isn’t such a challenge that you would need to call out a service provider, nor that such a simple business could be a multimillion dollar industry. However, in modern high-ceilinged offices and retail spaces, doing simple maintenance tasks can be quite hazardous. In addition, there are the indirect costs of lost man hours in having someone go to buy new lamps and a ladder, and lost productivity from that person not focusing on customer sales.

Lanabake’s Nagahama has been able to turn the light bulb changing business into an industry due to a number of simple but increasingly relevant insights. Firstly, he has contracted primarily with major chains, and therefore even though each piece of work is minor and low-profit, the combined effects of mass-procurement and store clerk man-hour savings can have real and noticeable impact on the P&L of a 500-branch chain store operator.

Secondly, because Lanabake’s basic services are so modestly priced that it gets them in through the door of a new customer. Once in, they set about convincing the procurement manager that the still small firm can be depended on, by rolling out the Lanabake “package.” Responsiveness, trouble-free service, low price, qualified electrical workers, and a smile are all values that are taught to company employees just as thoroughly as any McDonalds store manager. Using these values, the classic on-sell opportunities soon appear: “Thanks for changing my lights. By-theway, can you take a look at our kitchen water heater as well?”

Takeshi Nagahamaphoto by Andy Rain

Dealing with the competition

The recipe is working so well that the company is growing gangbusters, at around 140% a year. With growth like this, Nagahama thinks a lot about how to stay on track and eventually hit that elusive IPO. He has decided that he needs to stick to his core values of seeking a profit on each job, developing trust and face-to-face presence with the customer, and staying under the radar screen of his much larger competitors – and yet, scaling the business and rolling out new services. One way he has decided to do this is to go deep instead of broad in working with customers. Every few months, his team builds out more of the services menu that specific customers are saying they want, and so far have expanded the service line-up to other electrical, data infrastructure, and security infrastructure services. But, that’s it for the time being – Lanabake has no plans to move into building repairs or maintenance.

Right now the service menu for Lanabake is:

Electrical maintenance of commercial facilities

Emergency response service for electrical problems

Electrical construction

Data network construction and maintenance

Energy-conservation systems, maintenance, and construction

Why stop at cabling and electrical? Nagahama explains, “There are a lot of property management companies in Japan. Many of them are much larger than us and are ready to cut their prices to a loss-making level if they sense competition. We don’t want to get drawn into a downwards pricing spiral. Instead, we’re focusing on the one sector where competition is relatively lacking – electrical maintenance. The reason why this sector is still open to an independent like us is that it has traditionally been dominated by big government-authorized semimonopolies – the electric power companies and their agents and subsidiaries. Although much of the sector is still heavily regulated, there are many smaller seemingly unimportant maintenance tasks like changing lamps, where a company like ours can make money if there is sufficient scale.”

As the business results show, Nagahama’s “niche but nice” strategy has hit a receptive nerve among facilities managers. He started with retail because he knows that you can’t have a showroom with burned out lamps, even for a couple of hours, so they value responsiveness. As a result of that focus, he now dominates the retail sector as an independent vendor, and now he is turning his sights on REITs and independent office building investment firms who want to control costs and who do not want to be too dependent on one major general contractor.

In fact, this last point is very important. For a diligent facilities manager, getting the best prices usually means having to maintain healthy tension between multiple vendors. This can be hard to do with the older, established general contracting firms, who have their pride and reputation to protect and who would rather back out of an opportunity than go into a competitive bid for work. Nagahama’s value proposition is that he is seen by the big guys as a low-cost underdog – not enough of a threat to make them want to back down, but aggressive enough to give the facilities manager the ability to push prices down. Nagahama’s hope is that by being a stalking horse in a tender bid, he gets some of the scraps as a result. So far it’s been a great approach and is working.

We’ve mentioned a number of times that Lanabake is a small firm. So just how do they service a customer the size of a major chain store? Indeed, Lanabake’s marketing says that the company can support customers all the way from Hokkaido to Okinawa. The answer is that the company is the front end of a nationwide network of distributors and resellers that Nagahama has built up over the last 8 years. As with a franchise operator, Nagahama has insisted that his partners all work under a consistent brand image and set of work standards and processes. In this way, when a customer sees a partner in Kochi, for example, they are wearing the Lanabake logo and have been trained in the Lanabake values.

Furthermore, where are the customers coming from? Nagahama tells us that mostly it’s been good old fashioned shoe leather and direct marketing. When he pioneered the Lanabake Electrical Emergency Repair Service in 2000 (a good indication of how the incumbents had locked up the industry), the many resulting newspaper articles brought him his first few customers. From there he and his staff trawled the yellow pages, until they hit around 400 customers. At the next level, and perhaps surprisingly, his customers started coming from power companies. Nagahama says that changing light bulbs has always been an irritant for these firms and so they are happy to pass on the work. Most recently, after hitting around 700 customers, the sales team is now working the Internet.

Credibility – winning the first big customer

Lanabake is all about hard grind and systemization of a fragmented business. With focus on ideas such as 24/7 emergency response services, Nagahama has slowly begun chiseling out a niche for himself. His client base speaks for itself, consisting of mainly medium-sized chain store operators such as the Shimamura Group, a Saitamabased JPY328billion (US$2.78billion) apparel retailer with more than 1,150 stores throughout Japan, HMV Japan, Yodobashi Camera, and others.

Lanabake’s first big-name customer was Kojima Denki, a deal that came through in 2000 after Nagahama received some venture funding from the government. However, his first big-volume client, and the one that has catapulted him into the big leagues has been the Shimamura Group based in Saitama www.shimamura.gr.jp. Nagahama made his first sales approach back in 2003, when Lanabake still had just 5 employees. Nagahama reasoned that as an apparel retailer, Shimamura needed lighting continuity in its stores, but at the same time must be under costcutting pressure as the then-recession dragged on and the retail shakeout was reaching its peak. Nagahama adopted a classically Japanese strategy of first doing spot business with the group, allowing him to first get registered as a vendor and establish a track record. Once business started, he set about getting to know the Shimamura midmanagers, looking for those tasked with reducing costs and yet mentally ready to accept new vendors and systems of getting things done.

Some meetings and dinners later, he gained the attention of Furukawa in the procurement division. Initially interested in the low pricing and flexibility of Lanabake’s services, Furukawa became intrigued by the audacity of such a small company to try offering his firm services nationwide. Practically speaking, a 5-person company should not be able to make such an offer. However, as he got to know Nagahama, he discovered that Nagahama was a fount of solutions and ideas – things which Shimamura needed to stay competitive. Furukawa was particularly impressed with how Nagahama had managed to build up a nationwide network of subcontractors and partners, who liked the convenience of getting their work via the Lanabake call center and using the Lanabake notification and reporting system, even if it meant lower income.

After a few test runs, again a classic Japanese approach, Furukawa liked Nagahama enough to introduce him to his boss, Shimamura Senmu (Senior Managing Director) Akihito Fukuma. Fukuma was of course very aware of the cost-cutting challenges facing the company and wanted to set an example that the company was changing, to meet those challenges. Thus it was that on May, 2000 he signed a nationwide service contract with Lanabake to maintain all lighting systems in the company’s stores. This contract has since expanded to encompass other electrical systems and Lanabake’s innovative emergency response services whereby the firm’s maintenance staff will attend a Shimamura store or office within half hours.

Takeshi Nagahamaphoto by Andy Rain

Other high-profile customers in the Lanabake portfolio prove the credibility that Nagahama has been able to build for his firm. They include a number of apparel makers such as Aoyama Trading and Fast Retailing’s UNIQLO, building facilities manager Marubeni Facility, broadcaster Nihon TV, home electronics retailer Yodobashi Camera, and condominium builder/manager Leopalace. Nagahama particularly likes to mention the Leopalace account, since they have just purchased Lanabake’s new finger print scanning system for tenant access. The new system is yet another example of how Nagahama is broadening the company’s service lineup without straying from his cablinginfrastructure sand box.

Nagahama’s first foreign client was HMV Japan KK, www.hmv.co.jp. He admits that he was “shocked” in first dealing with them, because the sales cycle and decision process was so much quicker than for Japanese firms. Of course, this has been a good thing and he now realizes that dealing with foreign-run companies is probably the quickest way to lead the business to an eventual public listing. He says that he is willing and able to assist foreign REITs and property owners looking to cut costs on their lighting and electrical plant.

Takeshi Nagahama

To understand the meteoric rise of Lanabake, you first need to understand the driving force behind it, 41-year old Takeshi Nagahama. In talking to us, he shakes his head at the thought of the rapid growth of the firm – especially given that his system and business style is so basic and obvious. As to why he has been successful in a country where many others practice the same values, he speculates that, “My guess is that in the 1990s recession-induced consolidation of the maintenance industry, many vendors lost their ability to provide the personal touch and practice basic customer service values.”

He notes that while the maintenance business is certainly about pricing and Service Level Agreements, it is also about real people with real problems. He explains, “A store manager calling in at 6:00pm on a Saturday night that their front window display lighting has failed is going to be very upset. We make sure that not only do we respond quickly but also that our maintenance person treats them as a customer not an inconvenience. It’s amazing what a smile can do in terms of subsequent word-of-mouth recommendations by such front line people to their senior managers. Certainly this was the case for our first big customer, Shimamura, and it is a value system we try to inculcate into all of our staff.”

Grandpa at his shoulder

Nagahama’s background is that he was born in Osaka. He grew up in a conservative family, where the patriarchal grandfather dominated the family with a sharp mind and lots of personal convictions. As a police officer the grandfather had very strict expectations for his kids and grandkids, and you either loved him or hated him. Nagahama idolized the old man and was deeply influenced by his core values of honesty, hard work, and service with a smile. Thus he was devastated to see this proud old man robbed of his mental faculties due to the early onset of senile dementia. Nagahama resolved that one day he would build a welfare organization to look after disease victims such as his grandpa, and realized that one way he could carry out his dream was to secure a stable source of income and use that to build his long-term aspirations.

Thus Nagahama started out his career with the dream of building a business firmly embedded in his heart. What better job experience for a future entrepreneur then, than a job at a YAMAZEN Corporation, “Shousha” (Trading Company). He spent 5 years with machine tooling specialist Yamazen, learning about business methods, trading, and international business. From there he worked at Motorola, the US electronics company.

Finally, in 1999, he had amassed enough start-up cash, business plans, and future qualified electrical workers to start Lanabake. By virtue of the business sector, most of the maintenance work is carried out at night. So doing the work themselves, Nagahama and his colleagues worked the grave yard shift changing fluorescent lamps, inverters, and electrical cabling at chain stores such as Kojima Denki on a spot basis. The work would typically take up to 3 hours, not including the 2 hour commute, and the reward was a meager JPY5,000 per job – on an hourly basis, less than a McDonald’s burger flipper would make.

By the time each job was wrapped up, it would be in the wee hours of the morning, and Nagahama would snatch a couple of hours sleep before waking to start searching the yellow pages for new clients to call. The pressure of the early days was intense, and many times he thought of throwing in the towel. But then images of his stern but loving grandpa would come to mind and somehow he drew enough energy to keep going. To keep himself in shape, despite being constantly fatigued, Nagahama would spend some days making his calls from the local sauna – a good indication of his pragmatic side!

Looking to the future

Lanabake has big plans, despite its naturally conservative CEO. Nagahama says that he wants the business to be the “ASKUL” (a major office supplies company) in the data and energy segment of the building maintenance industry. He plans to build his sales to around JPY3billion in three years, and is aiming for an IPO in 2009. Doing business with more foreign firms is on his list of things to do, as is a tie-up with other major services companies who would like to pass on the lower-yielding work as the electrical companies have done.

We ask him about his goal to work in welfare and helping out the aged. He smiles and says, “I haven’t forgotten them. One of our new businesses is a low-cost call-out service for old folks still living by themselves at home. We plan to do this on a B2B2C basis, working on the behalf of organizations who are already helping with home care workers and similar services.”